Leasing and commercial finance options

There are a range of car leasing and commercial finance options open to private and company buyers of new and, with some limitations, used cars.

The structure of different types of leases vary but the basics are the same... You are paying for the difference between the purchase price of the vehicle at the start of the lease and its projected or residual value at the end, plus interest and costs.  As you are not building ownership equity in the vehicle, the upfront and monthly payments are often lower than for a car loan, and maintenance is often included.

Lease terms and residual values vary – there are many options here depending on the type, brand and value of the vehicle purchased.

Unlike a loan with a balloon payment at the end of its term, in most cases with leases you simply hand the car back. If the residual value you owe is higher than the car’s value, however, you may be liable for the difference.

Novated leases are an increasingly popular option. These include all the running costs of the vehicle and can be salary sacrificed and in part be paid via pre-tax income. Many companies have agreements with novated lease specialists so your choice of lender may be limited.

Company vehicle buyers can also consider tax and capex-effective car finance options such as chattel mortgages and commercial hire purchase.

A chattel mortgage sees the financier provide the funds to buy a car and assume ownership. The financier establishes a mortgage over the vehicle until the loan is paid in full. The buyer can choose to pay the full amount in equal instalments or have a final large balloon payment to reduce the regular payments. A large balloon payment may seem like a good idea initially but less so at the end of the term – especially if the vehicle has lost value (depreciated).

In the case of commercial hire purchase, the financier buys the car (retaining ownership) and agrees to hire the vehicle to you at a set fee for a set period. Most commercial hire purchase agreements are structured so the hirer pays the full cost of the vehicle plus interest and costs over the hire period and ownership is transferred to the hirer at the end.

One downside of leasing is that there are often restrictions on modifying the vehicle and mileage.